Help! What Should I Do?! UK Investment Advice

[JayBee]

Hi Guys

New to the forum and need some advice / opinions please. I am from the UK, single, currently reside abroad (Australia, permanent resident) am 36 years old and earn (the equivalent) of £35k per year. I have just move to the area I live in and am in a new job i.e. finance not an immediate option but will be soon.

I have significant savings in the UK (circa £400k) and around $100k in Australia. All of this is currently in the bank sitting earning minimal interest (UK 0.75%, AUS 2.8%, some in Peer 2 Peer at 4%). This has been my position for the last year and is frustrating - lots of cash, but doing not very much and not providing me with any cashflow to prop up my low earnings. I am hesitant to bring that money to Australia due the attrocious exchange rates since Brexit and i've basically been sitting on it waiting to see what would happen.

In order to do something with the UK cash I was considering buying a property outright in my hometown (all UK funds). Growth has been very strong there over the years and it seemed like a good bet that would initially provide me with cash flow (circa 3%) from the rent, with the option to mortgage further down the line if I wanted to free up cash (although AUS / UK mortgages not supposedly easy to arrange). It also gives me the option to return home if I ever want to and keep a strong family connection over there. I was then looking to use that cashflow to supplement my income in a property purchase over here, where I would look to pay the mortgage down fast.

I have instructed on a property and will be due to exchange soon, however I have a major case of cold feet. The property market has ground to a halt and I can see a huge possibility that prices will drop. If they do things will also be very slow to recover with Brexit etc in the background. Not exactly the time to be all in on property. Saying that growth might just be next to nothing for the next couple of years and then start to slowly recover so...

If i don't continue with the purchase, what else could i do? UK / US shares at an all time high doesn't exactly seem like a very safe bet either and I have little experience when it comes to investing.

My goals are to achieve cash flow initially, combined with growth in a relatively safe environment. I am pretty young so I am prepared to take risk to grow the money.

It seems my options are

1. Buy house all in, benefit from the cash flow, take risk in volatile market, possibly see not much growth / a loss over short term
2. Pull out, loose circa £2k and look at a simple(ish) plan to invest i.e.something like Vanguard Life Strategy 60:40 or possibly 80:20
3. Keep all £ in cash at 0.75% and wait and see what happens (budget end of Nov + Brexit / government in Jan)
4. Wear bad exchange rate (1.72), bring money to Aus (economy arguable more stable, housing market doing better) and either buy home plus some shares or a couple of rental properties (can get finance easier here)

I know this is very much a case of 'first world problem' but it is doing my nut in and I could do with some outside opinions / ideas. Any opinions or advice is much appreciated.

Thanks in advance

JayBee

[Playing with Fire UK]

Greetings and welcome JayBee!

I've put out a BatSignal for other UK folks to chime in.

Are you planning to move back to the UK and do you have a timeline?

My gut feel is that buying the house in the UK is a sub-optimal idea. Buying a house to rent out is in no way a slam dunk. Over time, UK houses tend to track UK inflation, they can do better or worse if you tweak the time period, but they are not a slam dunk, and you have a HUGE concentration of risk (single building, single area, single currency).

The rental cash flow can be reasonable, but in order to do well, you need to have an edge. Either access to cheap BTL mortgages (you won't have it), or an ability to do up a run down house (unlikely as you are remote from house), or an ability and inclination to manage it yourself to cut down on the management fees (not for you). I think you should pull out of the UK house purchase and eat the £2k fee loss, this will hurt and I'm sorry about that.

If I were you, I'd go for the Vanguard Lifestrategy, start with VLS60 as you are new to it, and switch to VLS80 if/when you feel braver.

Also, how do you have £500k in savings on a current wage of £35k without any experience of investment? That is massive. Have you taken a wage cut?

What is your spending like? You mention you are looking for cash flow to "prop up" low earnings? £35k is well above median in many areas. If you are interested in fine-tuning your spending you may find that work is optional for you very quickly.

[JayBee]

Greetings and welcome JayBee!

I've put out a BatSignal for other UK folks to chime in.

Are you planning to move back to the UK and do you have a timeline?

My gut feel is that buying the house in the UK is a sub-optimal idea. Buying a house to rent out is in no way a slam dunk. Over time, UK houses tend to track UK inflation, they can do better or worse if you tweak the time period, but they are not a slam dunk, and you have a HUGE concentration of risk (single building, single area, single currency).

The rental cash flow can be reasonable, but in order to do well, you need to have an edge. Either access to cheap BTL mortgages (you won't have it), or an ability to do up a run down house (unlikely as you are remote from house), or an ability and inclination to manage it yourself to cut down on the management fees (not for you). I think you should pull out of the UK house purchase and eat the £2k fee loss, this will hurt and I'm sorry about that.

If I were you, I'd go for the Vanguard Lifestrategy, start with VLS60 as you are new to it, and switch to VLS80 if/when you feel braver.

Also, how do you have £500k in savings on a current wage of £35k without any experience of investment? That is massive. Have you taken a wage cut?

What is your spending like? You mention you are looking for cash flow to "prop up" low earnings? £35k is well above median in many areas. If you are interested in fine-tuning your spending you may find that work is optional for you very quickly.

Thanks mate!!

You're kind of confirming what I have been currently feeling re the house particularly re risk coming into a volatile time. I do agree re having to have an edge to make good money in property and you're 100% right that I'm not in a position to take advantage of those scenarios. If i'm honest I've always liked property but I've simply bought into the media hype over the last few years as property in both my hometown (30% last 4 years) and over here in AUS has gone up and up.

In answer to your other questions the savings are a mix of my own and an inheritance. I did previously earn significantly more and my spending is pretty restrained - even on £35k I save at least 25%. All my family are in the UK and as they get older I see myself coming back more...whether to live though, that is another question and something I cannot answer right now.

As a single guy you won't get much in the inner city areas i'm interested in living in mortgage wise on £35k, hence the comments re propping up my earnings...

Thanks again

JayBee

[Rinch]

Hi Jaybee,

I'm a UK expat with a flat in the UK. I think in your position I would probably buy an international ETF since you don't know exactly where you'll be and having a home bias to the UK doesn't seem like much of a benefit to you. So have a look at the VWRL ETF rather than the lifestrategy fund, which has a UK bias I believe.

Having said that there is one thing to be aware of as a prospective foreign landlord. The UK gives the tax free allowance of £11,500 to everyone so if you have a property in the UK you won't pay any tax on a good chunk of the income from it. If you moved the money to Australia and bought an equivalent investment property you would probably pay tax at your marginal rate on the income. If you ask me it makes no sense for the UK to give this allowance to non residents but since it's there no one is going to turn down tax free income.

However, don't underestimate how much hassle landlording is. Agents will be expensive and you probably can't do it yourself from the other side of the world. What would you do if you have to project manage renovations and repairs? Sounds like a nightmare to me. With brexit on the horizon I'd say there's a fairly good chance of a fall in prices.   

If you do decide to buy into equities then you're probably best to buy it in regular chunks over a period of a few years to avoid buying in on the eve of a crash. Dollar cost averaging reduces risk because as prices change either you existing equity increases in value or you get to buy the dip.

[Playing with Fire UK]

As a single guy you won't get much in the inner city areas i'm interested in living in mortgage wise on £35k, hence the comments re propping up my earnings...

Ah, okay.

There are many reasons why people want to buy a home, some of them are more practical (can be cheaper than renting), some of them are emotional (wanting to look at the walls and know they are owned by the occupier (and the bank)), some are a bit of both (like seeing how prices have gone up around you).

Have you done a financial review of all your renting options vs all your buying options? And considered how the cost per year would vary if you stayed there for only a year or two? Often then the costs associated with buying and selling can contribute significantly to the overall monthly cost, but it's easy to write them off as a "one-off" cost of home ownership. There have also been decade-long periods where people can buy in at the "top" of the housing market, and the house is sold for the same amount (no accounting for inflation, just the same number of £ or $) at the end. I don't know everything about your position, but it sounds like one of the scenarios that it would be worth seriously considering continuing to rent.

Do you have a housing edge in Aus? Do you have construction / renovation skills? Could you rent out a room or two? Could you get a super-cheap mortgage rate locally on your current salary if you had a huge deposit?

Remember that you can also use your UK tax free allowance to take dividends before tax if you choose to invest. You'll need to ignore the normal advice about ISAs and UK pensions - as they won't apply to you.

Are you interested in stopping work? Or do you have other financial goals (even if they are vague)? Do you love your work at the moment? There might be alternatives that will work best for your particular goals.

[JayBee]

Hi Jaybee,

I'm a UK expat with a flat in the UK. I think in your position I would probably buy an international ETF since you don't know exactly where you'll be and having a home bias to the UK doesn't seem like much of a benefit to you. So have a look at the VWRL ETF rather than the lifestrategy fund, which has a UK bias I believe.

Having said that there is one thing to be aware of as a prospective foreign landlord. The UK gives the tax free allowance of £11,500 to everyone so if you have a property in the UK you won't pay any tax on a good chunk of the income from it. If you moved the money to Australia and bought an equivalent investment property you would probably pay tax at your marginal rate on the income. If you ask me it makes no sense for the UK to give this allowance to non residents but since it's there no one is going to turn down tax free income.

However, don't underestimate how much hassle landlording is. Agents will be expensive and you probably can't do it yourself from the other side of the world. What would you do if you have to project manage renovations and repairs? Sounds like a nightmare to me. With brexit on the horizon I'd say there's a fairly good chance of a fall in prices.   

If you do decide to buy into equities then you're probably best to buy it in regular chunks over a period of a few years to avoid buying in on the eve of a crash. Dollar cost averaging reduces risk because as prices change either you existing equity increases in value or you get to buy the dip.

Thanks, I'll have a look at those funds. Yes, I'd twigged that I wouldn't pay tax on my personal allowance - something that is quite appealing when I pay 40c on the $ over here....I'd pay very little tax, if any at all after costs on the apartment.

No way I'd try to let the place myself from over here - recipe for disaster! Agents are very expensive but I might have a way around that as a friend was interested in letting the property - how long that would last though is unknown and often in situations like this I find you are best staying away from involvement with friends or family as it can cause tension if there are problems.

I 100% agree regarding a fall in prices being likely - I am also pretty sure there will be a reduction on stamp duty for first time buyers in the budget which I would probably miss out on in this situation. No renovations to project manage, place is pretty modern and fortunately i've got friends and family I can draw on if need be. Doesn't mean it won't be a pain though...and if there's no growth for a prolonged period (or fall) it's a pretty poor investment if it's only yielding about 3%!

[JayBee]

As a single guy you won't get much in the inner city areas i'm interested in living in mortgage wise on £35k, hence the comments re propping up my earnings...

Ah, okay.

There are many reasons why people want to buy a home, some of them are more practical (can be cheaper than renting), some of them are emotional (wanting to look at the walls and know they are owned by the occupier (and the bank)), some are a bit of both (like seeing how prices have gone up around you).

Have you done a financial review of all your renting options vs all your buying options? And considered how the cost per year would vary if you stayed there for only a year or two? Often then the costs associated with buying and selling can contribute significantly to the overall monthly cost, but it's easy to write them off as a "one-off" cost of home ownership. There have also been decade-long periods where people can buy in at the "top" of the housing market, and the house is sold for the same amount (no accounting for inflation, just the same number of £ or $) at the end. I don't know everything about your position, but it sounds like one of the scenarios that it would be worth seriously considering continuing to rent.

Do you have a housing edge in Aus? Do you have construction / renovation skills? Could you rent out a room or two? Could you get a super-cheap mortgage rate locally on your current salary if you had a huge deposit?

Remember that you can also use your UK tax free allowance to take dividends before tax if you choose to invest. You'll need to ignore the normal advice about ISAs and UK pensions - as they won't apply to you.

Are you interested in stopping work? Or do you have other financial goals (even if they are vague)? Do you love your work at the moment? There might be alternatives that will work best for your particular goals.

I haven't done a financial review, but agree that that is where I should have started...set out some plans and timelines etc...I do agree and fully acknowledge that property is not a short term investment...high entry and exit costs mean you've got to be in it long term and I was kind of wondering if I bought this to just keep it indefinitely...but then later started to wonder whether I'd have the money to really afford what I wanted further down the line in 5 / 10 years if I did...

My big fear is buying this and ending up selling in 5 / 6 years for the same (or less) than I paid for it...what a waste of time and money that would be. I've seen the figures in the sold price histories where this has happened to people who got in at the wrong time and I guess that is why I am super nervous now.

I do have a housing edge in AUS to a degree. I'm flexible, not highly skilled but handy, have good contacts and am frugal - I'd definitely rent out spare rooms etc and yes, I could get something pretty nice over here with a mortgage...what has stopped me is that awful exchange rate which I think will recover over the next few years hence trying to find something for the money to do in the UK. Basic idea i'd had was to take the rental income and plough that into a place over here, rent the other rooms out and tank the mortgage to get well ahead...get something that ideally I could add value to and start from there.

Not looking to stop work, but I am shifting what I do and that means earning less for a while. Hopefully that will pay off in the long run and I'll earn more and enjoy what I do...can't ask for more than that imo! Ideal world i'd like freedom - to set myself up to retire relatively young (if I wanted to - I quite like working / business) with a nice house and a decent wage that allowed me to live comfortably and travel. I suppose I should focus on what that looks like and work back from there.

[dreams_and_discoveries]

My thoughts would depend on the location of the property, some areas like London are predicted to see minimal growth, others are tipped to rise due. If this is purely for investment purposes and income generation, I wouldn't go for a single property - it's not diversified.

But if you feel you have an inside edge, you know the area well and can read the sign of incoming investment and a growing population attracted to the area, to push up house prices you might be onto something. It would also be worthwhile if you wanted to return to the UK and that particular area at some time.

Also even though the stock market is at record highs, inflation is also relatively high and eroding your money sitting in the savings account. I'd say you need to make a decision, and don't forget that doing nothing also has a cost.